Chevron faces fines and drilling ban in Brazil

Chevron is set to face fines of millions of dollars from the Brazilian government over an offshore oil spill, and has been hauled up before the US drilling regulator.

The oil giant has already been fined an initial $28m after a 3,000-barrel leak last month, Brazil’s biggest oil spill in a decade, at its Frade project off the coast of Rio de Janeiro.

This figure is merely the maximum levy regulators are allowed to impose under Brazilian law, and the company is likely to face additional $28m fines if political pressure increases, or a federal investigation reveals further infractions.

Rio de Janeiro, meanwhile, has said that it could separately fine Chevron $16m. Chevron says $28m is equivalent to three days output from its Frade field, which produces 79,000 barrels-a-day.

The country’s National Petroleum Agency has temporarily banned Chevron from drilling, while the company has also been denied a request to drill a deeper well in the Frade field in order to reach reserves of more than 100 billion barrels of high-quality recoverable oil.

The Brazilian government said such drilling would “pose risks to the environment similar to those that occurred in the well where the spill occurred, but bigger and magnified by the greater depth”.

It is thought that the spill, caused according to Chevron by misjudgements of pressure and rock strength, could lead to the company’s contracts being re-evaluated in Brazil.

Rio de Janiero’s environment secretary suggested the problem was systemic at the multinational: “This accident could have been avoided. It wasn’t a lightening bolt from the middle of nowhere or a human failure.”

Phil Weiss, oil analyst at Argus Research in New York, said: “If they mess up again it’s like they’re on watch now. So they have to be careful.”

Chevron said: “We are going to thoroughly investigate the accident and present the results to the Brazilian people ... so that this does not happen again either here or in any other part of the world.”

The company has also been summoned by the US Bureau of Safety & Environmental Enforcement to explain the accident. Michael Bromwich, the Bureau’s head, said it will assess whether there are any implications for US offshore drilling oversight.